The fight to keep one's home

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Tess Vigeland: Imagine your most frustrating customer service experience. You spend hours tearing your hair out to no avail.

Multiply that several times over and you've got today's foreclosure process. It's gotten so bad that this week the comptroller of the currency directed banks to stop putting homeowners through foreclosure proceedings while they're trying to get a loan modification. And courts are cracking down on lenders who can't produce the documents to show they own title to these homes.

Marketplace's Stacey Vanek Smith reports on what seems like some measure of revenge for brow-beaten borrowers.

Stacey Vanek Smith: Yvonne Alvarez lives in a six-bedroom, three-story house in Corona Queens with her parents, her son, his wife, her siblings and their children. All told, 13 people live in the house.

Yvonne Alvarez: You can see the big living room, the kitchen. Sorry kid, so this is her room. Hi.

The Alvarez family has lived in this house for nearly four years. For most of that time, various banks have been trying to foreclose.

Alvarez: Since October 2008 and we're still fighting.

Vanek Smith: You call it a fight?

Alvarez: I call it more of a war.

Yvonne's father, Luis, bought the $600,000 home toward the end of the housing boom. No money down. His mortgage was a classic sub-prime: adjustable rate with a high minimum interest rate and a piggyback loan -- a second mortgage -- with an even higher interest rate. Six members of the household contributed to the mortgage payments. But when Luis Alvarez had a stroke and couldn't work as an ambulance driver anymore, the family fell behind. Luis put his daughter, Yvonne, in charge of dealing with the bank to try to save the house.

Alvarez: It's been a nightmare, paper after paper after paper after paper, and every month it's the same story: we didn't get the papers, we didn't get the papers, we didn't get the papers. I've given my life up for this.

Yvonne says she's spent countless hours talking to loan servicers and getting documents like paystubs organized, notarized and sent off. She says every time she called, she had to deal with a different person.

It didn't help that the loan kept changing hands. A unit of General Electric sold the loan to Bank of America, which handed it over to a servicer, Litton. Litton was participating in a federal program encouraging companies to modify loans rather than foreclose. Yvonne enlisted the help of attorney Sara Manaugh, with South Brooklyn Legal services. Manaugh says even with the federal program, papers had to be submitted again and again.

Sara Manaugh: More than 200 pages of documents in support of the Alvarezes' loan modification application and finally after 10 months, they said they had everything they needed.

This spring, the Alvarezes were approved for trial modification. Their payments dropped from more than $4,600 a month to a manageable $2,200. But a few months later, the Alvarezes' loan was passed to a new servicer, PennyMac, a company that specializes in distressed mortgages. Sara Manaugh says PennyMac told her Luis Alvarez didn't qualify for a loan modification.

Manaugh: The new servicer told us, 'It doesn't matter how many pages of documents you submitted to Litton or how closely they reviewed the file. We need to figure out how to help Mr. Alvarez sell his home.' And basically, that was the opportunity that they were offering.

The next thing the Alvarezes knew, their house up for sale by PennyMac. They called lawyer Sara Manaugh in a panic, and she learned that PennyMac had set a date for auction.

The middle of last month, Manaugh went to court to halt the process. She argued PennyMac hadn't provided the paperwork showing other options had been tried before foreclosure. The case is on hold because the lender has asked for time to get its papers in order. Yvonne Alvarez says she feels like the tables have finally turned.

Alvarez: Now it's PennyMac -- they're asking now for time to get the papers together. I go, 'Oh now the shoe is on the other foot.' Now they're the ones asking for time.

PennyMac didn't comment specifically on the case, but said it is committed to helping distressed borrowers and has a high success rate modifying loans for people who qualify. Mortgage companies are under new pressure from regulators and courts to produce a document trail for every foreclosure, which isn't always so easy because of possible mistakes by companies that created the loans and companies who sold them to investors, says Columbia University housing expert Chris Mayer.

Chris Mayer: This all goes back to the fact that these were badly done at every step of the way. The originators, all they wanted to do was process loans, so they did them as fast as possible and the underwriters, all they wanted to do was process them into mortgage-backed securities, and they did them as fast as possible and everyone cut corners at every step of the way.

If banks can't produce the proper paperwork, it's getting tougher to foreclose, even if homeowners haven't made a mortgage payment in months. Yvonne Alvarez hopes the new scrutiny of documents will help her family stay in their home. She says she'll keep pushing the mortgage company.

Alvarez: I have all these people counting on me. The way I see it, you want the papers? Fine. I'll give you an office full of papers if that's what you want -- but we're staying there. We'll fight it until the end.